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IFRIC 22: Foreign Currency Transactions and Advance Consideration
IFRIC 22: Foreign Currency Transactions and Advance Consideration
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IFRIC 22 is effective for annual reporting periods beginning on or after 1 January 2018 and was adopted
by the EU on 3 April 2018.
Scope of IFRIC 22
The Interpretation addresses foreign currency transactions when an entity recognizes a non-monetary
asset or a non-monetary liability that arises from the prepayment or prepayment received in advance
before the entity recognizes the related asset, income or expense recorded. It is not applicable when an
entity measures the related asset, income or expense on initial recognition at fair value or fair value of
the consideration received or paid at a time other than the initial recognition of the non-monetary asset
or non-monetary liability. Furthermore, the interpretation is not to be applied to income taxes, insurance
contracts and reinsurance contracts.
Example 1: Single advance payment for the purchase of a single item of PP&E
On March 20X1, Entity A entered into a contract with a supplier to purchase a machine for use in its
business. Under the terms of the contract, Entity A pays the supplier a fixed purchase price of FC 1,000 on
1 April 20X1. On 15 May 20X1, Entity A takes delivery of the machine.
pays a fixed purchase price of FC1,000. In applying IFRS 15 Entity D allocates FC 450 of the transaction
price to the first product and FC 550 to the second product. FC200 is due and received in advance on 31
January 20X4. Entity D has determined that these FC 200 relate to the first product transferred on 1 March
20X4. The remaining consideration of FC 800 is due and received on 1 June 20X4. On transfer of the first
product, Entity D has an unconditional right to FC 250 of the remaining consideration.
As the receivable of FC250 is a monetary item, Entity D updates the translated amount until the
receivable is settled (1 June 20X4: 250 x 1.9 – 250 x 1.7 = 50). Entity D transfers the second product
with a transaction price of FC550 on 1 June 20X4. Entity D recognises revenue of FC550 using the
exchange rate at the date of the transaction (1 June 20X4).
Conclusion
IFRIC 22 will has an impact on all entities that enter into foreign currency transactions for which
consideration is paid or received in advance. Applying the interpretation can be challenging for entities
that enter into long-term foreign currency contracts with complex payment schedules and/or significant
upfront payments.
For more information please contact the MGI Worldwide Global IFRS Group:
MGI Worldwide is a network of independent audit, tax, accounting and consulting firms. MGI Worldwide does not provide any
services and its member firms are not an international partnership. Each member firm is a separate entity and neither MGI
Worldwide nor any member firm accepts responsibility for the activities, work, opinions or services of any other member firm.
For more information visit www.mgiworld.com/legal.